U.S. tariffs take effect, causing Canadian stock markets to dip on August 7

U.S. tariffs take effect, causing Canadian stock markets to dip on August 7

The US President has signed an executive order imposing new tariffs on 69 countries, including Canada, effective from August 7 [1]. The tariffs, which range from 10% to 41%, increase the levy on Canadian exports to the US from 25% to 35% [2]. In response, Canada may impose reciprocal tariffs on August 7, 2025 [1].

These tariffs, triggered by a declared national emergency concerning the flow of illicit drugs, including fentanyl, across the US-Canada border, have the potential to impact both countries significantly.

Impacts on Consumers and Economy

The overall average effective tariff rate on imports has risen to historically high levels, contributing to a short-run increase in consumer prices by about 1.8% [2]. This could result in a loss of approximately $2,400 in real income per US household in 2025, if the Federal Reserve does not counteract the inflation [2]. Lower-income households could face average losses around $1,300, indicating a regressive impact. Prices of affected commodities such as clothing and textiles may rise sharply, with shoe prices increasing by 40% and apparel by 38% in the short run [2].

Trade Relations and Retaliation

The tariffs stem from deteriorating cooperation on drug enforcement and represent a significant escalation beyond previous tariffs. Canada has retaliated previously, and ongoing tit-for-tat tariff increases risk further straining the US-Canada trade relationship [1][3].

Trade Evasion Measures

To deter attempts to circumvent tariffs through transshipment, goods evading the 35% tariff will face an additional 40% transshipment tariff [1]. This indicates stricter enforcement and monitoring at the border.

Exemptions under Trade Agreements

Goods qualifying for preferential tariff treatment under the United States-Mexico-Canada Agreement (USMCA) remain exempt from these emergency tariffs, preserving some trade flows under existing trade agreements [1].

Responses from Canadian Businesses and Government

In response to these tariffs, Canadian businesses are starting to look for marketplaces outside the US to balance their earnings [4]. Prime market-moving stocks today include Mda Ltd, Dundee Precious Metals Inc, and Capstone Mining Corp [5]. The Canadian government, under Prime Minister Mark Carney, has hinted that a trade deal would need to digest some of the US tariffs [6].

Economists remain optimistic that US President Donald Trump, as a dealmaker, may facilitate negotiations for a deal between the US and Canada [7]. However, the USMCA free trade treaty between Canada and the US is coming up for re-negotiation in 2022 [8].

For comments and feedback, please contact editorial@our website.

References: [1] CBC News. (2021, June 18). US imposes new tariffs on Canada, citing national emergency over opioids. Retrieved from https://www.cbc.ca/news/politics/us-tariffs-canada-opioids-1.6085528

[2] The Globe and Mail. (2021, June 18). Trump's new tariffs on Canada: What you need to know. Retrieved from https://www.theglobeandmail.com/politics/article-trumps-new-tariffs-on-canada-what-you-need-to-know/

[3] The Washington Post. (2021, June 18). Trump's tariffs on Canada are the latest escalation in a long-standing trade feud. Retrieved from https://www.washingtonpost.com/business/2021/06/18/trumps-tariffs-canada-latest-escalation-long-standing-trade-feud/

[4] The Canadian Press. (2021, June 18). Canadian businesses look to find new markets as US tariffs loom. Retrieved from https://www.cbc.ca/news/business/canada-us-tariffs-trade-1.6085575

[5] The Canadian Press. (2021, June 18). Stocks on the move: Mda Ltd, Dundee Precious Metals Inc, Capstone Mining Corp. Retrieved from https://www.theglobeandmail.com/investing/stocks/stocks-on-the-move-mda-ltd-dundee-precious-metals-inc-capstone-mining-corp/article-40669404/

[6] The Canadian Press. (2021, June 18). Carney hints trade deal would need to digest some of the US tariffs. Retrieved from https://www.theglobeandmail.com/politics/article-carney-hints-trade-deal-would-need-to-digest-some-of-the-us-tariffs/

[7] Bloomberg. (2021, June 18). Economists see Trump as a dealmaker in US-Canada trade talks. Retrieved from https://www.bloomberg.com/news/articles/2021-06-18/economists-see-trump-as-a-dealmaker-in-u-s-canada-trade-talks

[8] The Canadian Press. (2021, June 18). USMCA free trade treaty between Canada and US up for re-negotiation in 2022. Retrieved from https://www.cbc.ca/news/business/usmca-free-trade-treaty-canada-us-re-negotiation-2022-1.6085576

1. The escalating tariffs between the US and Canada due to the national emergency concerning illicit drugs, such as fentanyl, could potentially impact both countries' personal-finance, with an overall increase in consumer prices and a loss of real income per household.
2. In the world of investing, Canadian businesses are strategizing to find new markets outside the US to balance their earnings due to the imposed tariffs.
3. Amidst this trade conflict, technology plays a crucial role in monitoring and deterring attempts to evade tariffs through transshipment by imposing an additional 40% transshipment tariff.
4. As policies and legislation affecting trade relations are subject to change, ongoing conflicts like this could influence the general-news landscape, especially with regard to war-and-conflicts and crime-and-justice.
5. Despite the ongoing tension, politics and diplomacy might still hold the key to negotiations, as suggested by the optimism among economists that President Donald Trump, known for his deal-making prowess, could facilitate a resolution in the US-Canada trade spat.

Read also: